Tax Type
Retail Sales and Use Tax
Description
Occasional sales, including mergers; Purchase of corporation exempt
Topic
Taxability of Persons and Transactions
Date Issued
06-09-1998
June 9, 1998
Dear***********:
This is in reply to your letter of February 10, 1998, in which you seek correction of the department's withholding and sales and use tax audit assessments issued to ***** (the "Taxpayer'), for the withholding periods January 1995 through June 1997, and the sales tax period August 1994 through July 1997. I note that a portion of the department's assessments has been paid.
FACTS
The Taxpayer operates as a restaurant and disagrees with certain areas of the department's audits.
Withholding
The audit disclosed payments to individuals which the auditor regarded as payroll checks for employee services, Memo notations written on each check, however, indicated that the payments were for food reimbursements. The Taxpayer has provided receipts to support that the amounts were for reimbursements for food and requests that the amounts represented by the checks be removed from the audit.
Sales and Use Tax
The Taxpayer was unable to provide actual sales figures for the period January through July 1997 when notified that differences were found between amounts reported to the department and journal totals. As a result, the auditor estimated sales based on departmental methods using average sales plus 25%. The Taxpayer states that the estimates are overstated and include collected sales taxes. The Taxpayer has submitted bank deposit information to reflect proper totals and requests that the provided amounts should be used rather than the figures used by the auditor.
Lastly, the department's audit disclosed that the Taxpayer purchased the corporation in 1995, and there were no invoices to reflect that taxes were paid on exchanged assets. The Taxpayer has submitted a copy of the purchase agreement indicating that it purchased only the corporation and not the assets of the corporation. The Taxpayer seeks the removal of the deficiency related to the fixed asset purchases.
DETERMINATION
Withholding
The department's auditors, in reviewing taxpayer records, are obligated to question payments to individuals when an inspection of a taxpayer's records does not reflect salaries or wage deductions taken on federal returns, when the prior owner was registered for the payment of monthly withholdings for employees. Comments by the auditor indicate that the memo notations of the checks did state that the check was for "food.' However, it was also noted that one check reflected a memo notation stating that the check was for "payroll.' It is possible that the "payroll' notation may have been an error by the check writer, and that the checks are actually reimbursements for food.
I am not convinced, however, that the receipts supplied by the Taxpayer provide the information necessary to determine the actual disposition of the check amounts in question. Accordingly, l will have the auditor contact the Taxpayer for the purpose of reviewing the information necessary to properly verify the check amounts. If the required information is not provided to the auditor, the assessments will be deemed correct as issued and will become due and payable inclusive of accrued interest.
Sales and Use Tax Sales:
The courts have consistently held that a tax assessment issued by the proper authorities is prima facie correct, and the burden is on the taxpayer to prove otherwise. (Code of Virginia Sec. 58.1-205). While the Taxpayer maintains that the reported sales remain correct, l cannot agree.
Title 23 of the Virginia Administrative Code (VAC) 10-210-470 provides that every dealer liable for the collection and remittance of sales and use tax is required to keep and preserve for three years adequate and complete records necessary to determine sales and use tax liability. When available records are incomplete in the course of an audit, the auditor must resort to other measures to determine tax liability.
One of the purposes of an audit is to determine whether the dealer has properly collected and remitted all of the sales tax due on taxable sales. In this case, the Taxpayer could not provide the required documentation to substantiate that sales reported to the department were accurate. For example, the Taxpayer did not explain the differences between the sales reported to the Commonwealth each month and the recorded journal totals each month.
Based on the lack of documentation in this case to support the Taxpayer's contention, the department has no choice but to estimate the tax liability, as provided under Code of Virginia Sec. 58.1-618, based on the best information available from the Taxpayer's records. Although assumptions had to be made by the auditor due to the circumstances, l believe that the liability resulting from this audit is reasonable. I will, however, allow for the Taxpayer to make available that information requested by the auditor to properly analyze the Taxpayer's sales records. As previously stated, if the information is not made available within a reasonable amount of time, as agreed between the Taxpayer and the auditor, the original assessment will be considered correct as issued, and subject to the assessment of accrued interest on the outstanding balance.
Asset Purchases: With regard to the fixed asset purchases, based on the additional information provided, l agree that the assets at issue should not be included in the department's audit. Accordingly, the audit has been revised to remove these items. A copy of the revised assessment, adjusted only for the fixed assets, has been sent to the Taxpayer.
The auditor will contact the Taxpayer to establish a mutually agreeable time to revisit the remaining issues. If you should have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.
Dear***********:
This is in reply to your letter of February 10, 1998, in which you seek correction of the department's withholding and sales and use tax audit assessments issued to ***** (the "Taxpayer'), for the withholding periods January 1995 through June 1997, and the sales tax period August 1994 through July 1997. I note that a portion of the department's assessments has been paid.
FACTS
The Taxpayer operates as a restaurant and disagrees with certain areas of the department's audits.
Withholding
The audit disclosed payments to individuals which the auditor regarded as payroll checks for employee services, Memo notations written on each check, however, indicated that the payments were for food reimbursements. The Taxpayer has provided receipts to support that the amounts were for reimbursements for food and requests that the amounts represented by the checks be removed from the audit.
Sales and Use Tax
The Taxpayer was unable to provide actual sales figures for the period January through July 1997 when notified that differences were found between amounts reported to the department and journal totals. As a result, the auditor estimated sales based on departmental methods using average sales plus 25%. The Taxpayer states that the estimates are overstated and include collected sales taxes. The Taxpayer has submitted bank deposit information to reflect proper totals and requests that the provided amounts should be used rather than the figures used by the auditor.
Lastly, the department's audit disclosed that the Taxpayer purchased the corporation in 1995, and there were no invoices to reflect that taxes were paid on exchanged assets. The Taxpayer has submitted a copy of the purchase agreement indicating that it purchased only the corporation and not the assets of the corporation. The Taxpayer seeks the removal of the deficiency related to the fixed asset purchases.
DETERMINATION
Withholding
The department's auditors, in reviewing taxpayer records, are obligated to question payments to individuals when an inspection of a taxpayer's records does not reflect salaries or wage deductions taken on federal returns, when the prior owner was registered for the payment of monthly withholdings for employees. Comments by the auditor indicate that the memo notations of the checks did state that the check was for "food.' However, it was also noted that one check reflected a memo notation stating that the check was for "payroll.' It is possible that the "payroll' notation may have been an error by the check writer, and that the checks are actually reimbursements for food.
I am not convinced, however, that the receipts supplied by the Taxpayer provide the information necessary to determine the actual disposition of the check amounts in question. Accordingly, l will have the auditor contact the Taxpayer for the purpose of reviewing the information necessary to properly verify the check amounts. If the required information is not provided to the auditor, the assessments will be deemed correct as issued and will become due and payable inclusive of accrued interest.
Sales and Use Tax Sales:
The courts have consistently held that a tax assessment issued by the proper authorities is prima facie correct, and the burden is on the taxpayer to prove otherwise. (Code of Virginia Sec. 58.1-205). While the Taxpayer maintains that the reported sales remain correct, l cannot agree.
Title 23 of the Virginia Administrative Code (VAC) 10-210-470 provides that every dealer liable for the collection and remittance of sales and use tax is required to keep and preserve for three years adequate and complete records necessary to determine sales and use tax liability. When available records are incomplete in the course of an audit, the auditor must resort to other measures to determine tax liability.
One of the purposes of an audit is to determine whether the dealer has properly collected and remitted all of the sales tax due on taxable sales. In this case, the Taxpayer could not provide the required documentation to substantiate that sales reported to the department were accurate. For example, the Taxpayer did not explain the differences between the sales reported to the Commonwealth each month and the recorded journal totals each month.
Based on the lack of documentation in this case to support the Taxpayer's contention, the department has no choice but to estimate the tax liability, as provided under Code of Virginia Sec. 58.1-618, based on the best information available from the Taxpayer's records. Although assumptions had to be made by the auditor due to the circumstances, l believe that the liability resulting from this audit is reasonable. I will, however, allow for the Taxpayer to make available that information requested by the auditor to properly analyze the Taxpayer's sales records. As previously stated, if the information is not made available within a reasonable amount of time, as agreed between the Taxpayer and the auditor, the original assessment will be considered correct as issued, and subject to the assessment of accrued interest on the outstanding balance.
Asset Purchases: With regard to the fixed asset purchases, based on the additional information provided, l agree that the assets at issue should not be included in the department's audit. Accordingly, the audit has been revised to remove these items. A copy of the revised assessment, adjusted only for the fixed assets, has been sent to the Taxpayer.
The auditor will contact the Taxpayer to establish a mutually agreeable time to revisit the remaining issues. If you should have any questions regarding this matter, please contact ***** of the department's Office of Tax Policy at *****.
Rulings of the Tax Commissioner